The paper aims to identify the main characteristics of the financial cycle for Romania using both the classical and growth cycle approaches. The turning point methodology represents the classical approach, while a band-pass filter is applied to capture the growth cycle. First, the paper assesses the significance of the medium-term cyclical component and finds that its importance increased since 2000s. The second purpose is to identify the relevant variables for the construction of a composite measure of the financial cycle. The results reveal that total credit and real estate prices are the best candidates. Regarding cycles’ characteristics, the classical approach shows that credit cycles tend last around 10 years, while the real estate cycles are longer and exhibit higher corrections during downturns.
Drehmann, M., Borio, C. and Tsatsaronis, K. (2012), Characterising the financial cycle: don’t lose sight of the medium term! (Working Papers, No. 380). Retrieved from BIS website: https://www.bis.org/publ/work380.pdf
Harding, D. and Pagan, A. (2002), “Dissecting the cycle: a methodological investigation”, Journal of monetary economics, 49(2), 365-381.
Harding, D. and Pagan, A. (2006), Synchronization of cycles, Journal of Econometrics (132), 59-79.
Neagu, F., L. Tatarici and Mihai, I. (2015), Implementing Loan-to-Value and Debt Service-To-Income measures: A decade of Romanian experience, (Occasional Papers No. 15). Retrieved from National Bank of Romania website: http://www.bnr.ro/PublicationDocuments.aspx?icid=6899